Saturday, April 30, 2016

The pending large beer merger has called attention to the continuing decline of beer in most of the world. People have been drinking less beer in the United States since the 1990s, but it’s a trend that has also been evident in western Europe and, now to a greater extent, eastern Europe. Anheuser-Busch InBev is looking to sell off its eastern European brands mainly because of a shrinking market for beer there.

If beer is a declining product in most of the places in the world that are known for beer, then where is beer consumption increasing? Beer market analysts point to the Middle East, Africa, and Latin America, but in practical terms, it appears the actual growth markets are East Africa, West Africa, and Colombia. Venezuela had been tipped as a growth market, but a currency crisis there that has shortened the work week to two days also means that beer is now in short supply. Polar, which made 80 percent of the beer in Venezuela, shut down manufacturing yesterday after months of being unable to pay for imported ingredients. Other beer makers have also had to cut back, so beer will be a scarce commodity in Venezuela this year. No doubt during the shortage some consumers will lose their taste for beer, so that beer is unlikely to return to its pre-crisis market position.

Friday, April 29, 2016

Trouble on all sides: Investment fund 1MDB is in default after missing interest payments on $2 billion in bonds. This default, in turn, appears to have triggered technical defaults on two other bond issues worth a similar amount of money. Separately, the Malaysian central bank issued a notice of non-compliance for 1MDB’s failure to disclose important facts in its applications to make some of its foreign investments. The international investigation of 1MDB has expanded to include Seychelles. Singapore authorities have arrested at least two bankers in their investigation of 1MDB transactions. A U.K. banker is caught up in the investigation there after a $33 million commission paid to the banker was found to have originated in 1MDB.

Hacked: The Swift network for international money transfers between banks said it was hit with a series of bogus transactions going back to last year. Swift users will have to install updated software, it said.

Failed: State regulators in Tennessee closed Trust Company Bank in Memphis. The failed bank had $20 million in deposits and four branch locations. Deposits have been transferred to The Bank of Fayette County, which is also purchasing a small part of the assets. This is only the second U.S. bank failure of the year.

Thursday, April 28, 2016

Bankruptcy seems to be the theme for today, and it’s worth noting that the rate of business bankruptcies and other business failures doesn’t seem to be following the arc of the business cycle in the classic sense. You expect the depths of a recession to cause the most troubled businesses to fail, and it did six and seven years ago, but only in a relatively muted way. Some of the businesses that looked like they were done for in 2007 have managed to limp along to the present, never quite getting back on their feet and still looking to have a high risk of failure within three years. When you look at it a certain way, there is something to be said for letting a business fail at this point in the cycle, after seven years of historically strong employment growth, particularly if you are a creditor. In a recession creditors tend to give a struggling business a chance to show it can do better when economic conditions improve. That logic no longer applies. If a consumer goods retailer like Sports Authority cannot justify its existence now, with national employment numbers at an all-time high and consumer confidence reasonably strong, then it never will.

When you read some of these bankruptcy stories, you can’t help but imagine that some of the executives in charge are not listening to what their accountants are telling them about the costs the company will face if an initiative fails. Sports Authority was planning large-scale store expansions right up until December and the Christmas shopping season that fell slightly short of expectations. In the span of that month, the retail chain went from aggressive expansion to the first stages of winding down. It was a similar story years ago when Broders failed. The book chain had already put its sign on the front of what it hoped would be its new stores, and found out in the middle of its expansion plans that not only did it not have the money to expand, but it could not even keep operating.

One problem may be that executives are writing bankruptcies as alternative scenarios in their expansion plans. I’m afraid many executives have come to see bankruptcy as a survivable event and are actually charting their course through a bankruptcy two or three years out as they draft their strategic plans. To be sure, there are many stories of businesses emerging from bankruptcy, but it is not something to plan on, in either a legal or a practical sense. Both Borders and Sports Authority originally filed for reorganization in bankruptcy only to find, a few weeks in, that there was no financial path forward.

Part of the difficulty businesses face is the assumption, taught in management schools, that tough economic times are a good time for a business to gain market share. This is true in the sense that the cost of adding to market share may be lower during a recession, when certain prices are lower than usual. However, as we have seen, the risks of expanding in the early years after a recession are considerably higher. Businesses that expanded aggressively in 2009 were bankrupt in 2013; those that thought they were being more cautious by waiting until 2010 and 2011 are the ones filing for bankruptcy now. Many of the recently failed businesses are in business segments that in retrospect were obviously shrinking and are closer to being in balance after one of the major players is taken out. That explains how a business that thinks it has friends can discover, after entering bankruptcy, that the world of business is not such a friendly place.

American Idol is in bankruptcy along with the rest of Core Media Group. But wait, didn’t the broadcast run of American Idol end just this month? The rapid bankruptcy shows how a weak company can look like a going concern only to fall apart rapidly from a single change in its business environment. The bankruptcy filing tells of a company that has been in financial trouble for at least two years with the declining public interest in all things Idol. A much smaller company is likely to emerge from bankruptcy reorganization. The actual bankrupt entity, Core Media Group, was created just four years ago in a buyout that now must be seen as a mistake.

After conducting 140 high-priority store liquidations when it first entered bankruptcy, Sports Authority now appears to be going into liquidation for its remaining assets. The bankrupt sports retailer is beginning to plan a liquidation auction to take place in May pending court approval. It is possible for individual stores to be sold to new owners in a liquidation auction, but that is a trouble-prone process for buyers, so it won’t be a surprise if all the remaining stores close. Similarly, the Sports Authority web store could be sold to a buyer, but the more likely scenario is that a buyer buys only the trademark and domain name and creates a new web store with a new design and new inventory. The liquidation of Sports Authority is another in a long list of setbacks for the big-box retail format.

Wednesday, April 27, 2016

An article in the New England Journal of Medicine notes that colon cancer is declining. This is good news, of course. There are three major lifestyle trends occurring at the same time that could plausibly account for the declining incidence of colon cancer: fewer people are using tobacco, people are eating less (and perhaps better) processed meats, and people are paying more attention to the need for proper hydration. Whatever the explanation, colon cancer among U.S. adults is occurring 40 percent less often than in the 1980s. The decline in the disease makes it less important for those with no symptoms or risk factors to be tested for it. Other research suggests that processed meat is the primary cause of most cases of colon cancer, so anyone who eats processed meat regularly should continue to make colon cancer screening a priority.

Saturday, April 23, 2016

European Union finance ministers meeting this week easily agreed to share information on ownership of shell companies. Though there were some cautions about privacy in the meeting, they took a back seat to concerns about multinational corporations using offshore shell companies to hide assets and income and generally get around the rule of law. Proposed rules would require tax disclosures by multinational corporations with annual revenue exceeding €750 million. These are big businesses that have hundreds of employees, so that no one’s personal privacy is at stake. It is worth remembering that there are multinational corporations of every size. For a €500,000 corporation with five employees, full tax disclosure would tend to reveal personal incomes and other details of individuals’ lives. I fear, though, that finance ministers’ concerns about privacy have more to do with shell corporations that house personal investment funds. There is little justification for protecting anonymity in cases where a wealthy individual voluntarily creates or purchases a corporation in another country, not to do any business, but simply to avoid taxes on investments. The challenge is that it is hard to tell what the purpose of any specific shell company is as long as the owners and assets are unknown. Finance ministers agreed that these shell companies, whether owned by multinational businesses or billionaire-investors, are taking advantage of current rules to create a degree of secrecy that they don’t deserve.

Friday, April 22, 2016

Arrest: Authorities in Singapore have arrested a banker in the 1MDB case and are holding him in isolation while the investigation continues. Swiss investigators this week have suggested that 1MDB, nominally an investment fund based in Malaysia, is fundamentally corrupt. Investigations are also ongoing in Malaysia, Luxembourg, and the United States.

Cuts: Wall Street banks cut costs in the first quarter, with total expenses down about 10 percent from the year before, but the cost-cutting was not fast enough to keep ahead of falling revenue. With most giant banks reporting a decline in profits in the quarter and economic conditions remaining unfavorable for banking, executives are wary and more cuts are surely on the way, if not necessarily right away.

Risk: Continuing low energy prices do not present a direct systemic risk to U.S. banks. Only a few banks have more than 2 percent of assets in energy projects.

Diesel emissions problems will cost Volkswagen billions of dollars. One of the big questions that may determine how much the scandal costs the company is that of how many cars it will have to buy back. That remains an open question after an agreement in principle has been reached with U.S. regulators for 2-liter engines, which covers most of the recent diesel cars Volkswagen has sold in the U.S. This framework may eventually be extended to cover larger cars and trucks. Volkswagen will offer to buy back the cars, but it’s a choice for the buyers to make. How many owners will elect to sell their cars back?

The rate is hard to predict, and not just because the actual offer is months away and many of the details remain to be worked out. There are arguments to be made for and against selling your car into a buyback program. Some fraction of the cars will have mechanical problems that make owners more eager to unload then. If a car is working reliably, though, it is harder to give it up. Some VW diesel owners surely will feel they don’t have time to go through the complicated process of trading in their cars.

For VW owners who don’t want to sell their cars back, there may be an engine repair option. The details of the repair have not yet been designed or approved. If the repair is particularly robust, that may look like the better option. On the other hand, if the repair still falls short of emissions standards, that option might seem too risky. The details that are available so far aren’t enough to allow a Volkswagen diesel car owner to begin to weigh the various considerations involved. That also means we can’t meaningfully assess the cost to Volkswagen yet.

Wednesday, April 20, 2016

The Panama Papers continue to steer events around the world. In Brazil the confirmation of large amounts of offshore money may have set up the political environment for the impeachment of the president, even if the articles of impeachment refers to the reallocation of government funds rather than anything to do with anyone’s personal funds. It is a troubling situation in governance in Brazil, with roughly half of top officials named in one of several active corruption investigations. The corrupt will have to judge the corrupt. The situation is not so different in FIFA, where one key figure was connected to the Panama Papers after a bribery scandal had already taken out much of the leadership. Meanwhile, the United States has started a criminal investigation into possible tax evasion in offshore shell companies. The Internal Revenue Service is encouraging taxpayers to correct their tax reports before they get caught to avoid prosecution.

Friday, April 15, 2016

Settled:Goldman Sachs is paying $5 billion to settle issues with mortgage-backed securities it sold in 2005–2007.

Pressure: Put in a tough spot by a new discrimination law in North Carolina, multiple banks have canceled plans to expand there. Similar laws have been enacted in at least three other southern states.

A do-over: Five Wall Street banks’ resolution plans will have to be redone to close gaps identified by the Fed and FDIC. The rejected plans don’t realistically address how the banks will maintain liquidity through the process of winding down and selling off business units. Resolution plans are supposed to be contingency plans that banks can follow if they find they are running out of money.

Taking losses: Wall Street banks are reporting lower profits as they set aside money to cover problem loans in the energy sector, a pattern that is likely to continue through next year. The largest coal company in the world, Peabody Energy, went bankrupt this week under pressure from low energy prices and falling demand and after potential buyers were unable to obtain loans to finance the purchase of some of its mines.

Green-lighted: A scaled-down rescue fund for Italian banks was agreed to on Monday. The €6 billion fund is too small to do anything if a giant bank stumbles, but it may be able to help recapitalize midsize banks. Plans from last year had to be scaled back to work within new euro zone rules that prohibit state-funded bank rescues.

Indicted: The SEC charged one elected and one appointed official with securities fraud after misleading statements related to the financing of a minor-league baseball stadium in 2010. The SEC is pursuing a separate civil case that also names two other officials and the town they all work for.

Wednesday, April 13, 2016

Fossil fuel producers thought they would be safe for a few more decades while sustainable energy sources ramped up slowly. They were right about the slow pace of sustainable energy coming online. Solar power, for example, is only 1 percent of U.S. electric production, and solar probably will not reach 10 percent before 2020. That is little consolation, though, to fossil fuel producers in the middle of an unprecedented string of bankruptcies.

Today it was the turn of the world’s largest coal producer, Peabody Energy, to file for bankruptcy protection (press release PDF). Besides its mining interests, Peabody Energy is involved in coal trading, and it is harder to be a trader in a commodity whose value is steadily declining. The company has been operating at a loss for more than a year and has no realistic prospect of paying the debts it took on to buy many of its coal mines. If the public interest is considered in bankruptcy, the creditors will get only a token payment while the coal mining assets are preserved to pay the inevitable costs of mine decommissioning.

Peabody Energy had tried to sell some of its coal mines to improve its liquidity, but those deals fell through when prospective buyers could not arrange financing. Banks in general are no longer willing to fund purchases of coal mines, and the largest U.S. banks are already overextended in the energy sector and facing losses from nonperforming loans. It was when the pending sales fell through that Peabody Energy declared bankruptcy.

Coal mining will continue for decades to come in the United States but is not likely ever to return to the rapid pace of extraction seen a couple of years ago.

Tuesday, April 12, 2016

The Panama Papers could lead to the largest-ever international tax investigation. Tax authorities from at least 28 countries are meeting Wednesday in Paris to try to decide how to proceed. International information-sharing makes sense with shadow money because at the early stages of looking at a particular company investigators are not likely to know who the owners are or what countries they may owe taxes to.

Monday, April 11, 2016

In looking at more of the consequences of the Panama Papers, I’ll focus for today on the United States, though I have little doubt that similar considerations apply elsewhere.

The scale of shadow money is startling to ordinary people. Each shadow-money company contains more money than the average person will see in a lifetime — yet it seems there are more than a million of these shell companies, and they have a cumulative financial value greater than all the money in the world. What happens to this missing money? An alarming (if small) fraction of it goes into politics in the form of bribes and contributions. Members of the Federal Election Commission are concerned about an abrupt increase in political contributions from shell companies in the current election cycle. More than half of the money in political contributions reported in the first quarter came from shell companies and is effectively anonymous. Anonymous political contributions are technically illegal, so something has gone very wrong if the majority of contributions are anonymous. A shell company may exist just for a matter of a few days, not conducting any business, but existing just for the purpose of laundering $10 to $100 million in political spending. One of the more serious problems with this arrangement is that no one can tell what country the political money came from. To a significant extent, international interests may be financing and controlling the U.S. election. Expect the FEC to adopt new rules about anonymous corporations and shadow money, but probably not soon enough to stop of flow of anonymous money into the current election. In the meantime, the flood of political shadow money mainly benefits broadcasters. You may have noticed that the election year has interrupted the wave of broadcasting failures and bankruptcies. It will resume after the election is over.

Another effect of the focus on offshore money has to do with the credibility of austerity budgets and the accompanying trickle-down theories of economic stimulus. Voters are starting to get the impression that austerity budgets are mainly a way to steer money to the wealthy investor class, who in turn will redirect most of that money out of the country, resulting in no discernible stimulus effect. As one pundit put it today, “The money trickled offshore.” As suggested a century ago by Keynes, only fiscal stimulus is able to ensure that money is spent in an economically meaningful way, such that the national economy is actually helped.

Friday, April 8, 2016

Wells Fargo will pay $1.2 billion to settle deceptive mortgage practices. The bank obtained federal insurance on thousands of defective mortgage loans by hiding risks and irregularities. The deal announced today had been in the works for about a year.

Did the $81 million stolen from the Bangladesh central bank’s account at the Fed end up in China? That’s what investigators in the Philippines believe after tracking down half of the money in the accounts of two Chinese citizens who were customers at casinos in Manila. The investigation continues.

There have been delays in the Greek bailout process, with the IMF leaking a document said to be critical of Greece’s efforts. The bailout terms called for the country’s biggest ports to be privatized, but the largest, Piraeus Port, will not end up in private hands after all. The high bidder is a Chinese state-controlled port operator, which will pay €368 million over 5 years for a 67 percent share in the port. The new owner will spend an additional €500 million to upgrade and expand the port, including a pier for larger cargo ships.

Years of austerity budgets in the United Kingdom, combined with low interest rates, has put the economy in a perilous state with excessive levels of both household debt and net imports. At best, this is a setup for years of stagnation as consumers pay down debts to a sustainable level.

Investigations are underway into the conduct of banks that did business with an offshore shell company agent in Panama, after details of asset-hiding, money laundering, and bribery arrangements came out in what are called the Panama Papers. U.K. banks have been asked to detail all business they may have done with the law firm at the center of the scandal. The U.K. prime minister has promised changes in the tax code but has to address his own conduct after being caught with unimaginable wealth stashed offshore and beyond the reach of tax authorities. In Iceland, the prime minister caught in a similar setup has already submitted his resignation. Switzerland has launched a criminal investigation because of the large number of agents based in Geneva who conducted transactions for shadow-money investors.

A change in U.S. tax rules on mergers took away the tax advantages of a pending big pharma merger, which would have been the second largest merger ever. With the tax avoidance strategy scuttled, the merger has been called off. As a result Wall Street banks lost an estimated $200 million in fees and surely millions more in securities bets. A similar European telecom merger plan fell apart last week, and a much smaller merger in U.S. office supplies, which would combine Staples and Office Depot, is being opposed by antitrust regulators and is now expected to be rejected in the end. Wall Street is likely to charge higher fees for future merger deals because of the risk of a failed deal. The higher fees, in turn, will make companies less eager to consider mergers and acquisitions. Investment banks have already made huge cuts because of recent declines in mergers and acquisitions, which hit a five-year low in the first quarter.

A parliamentary inquiry into the Malaysian state investment fund 1MDB found that managers at the fund improperly made deals without board approval. In other countries four giant banks are under investigation for their involvement in processing unexplained payment transactions which are thought to have been a combination of bribery and theft.

At least 4 percent of U.K. bank branches are likely to close this year according to a survey by Reuters. HSBC is expected to close 200 branches, with other banks together closing at least that many. Automation alone could cut bank staffing by 30 percent over the next 10 years, according to a Citigroup report, with most of those cuts taking place in branch offices. Adding to the pressure, banks could lose a significant part of their transaction business to technology companies in the coming years.

Banks are among the major corporations caught off guard by new discrimination laws passed this year by several southeastern states. Other corporations might complain about the laws, but can’t do much about them in practice. All giant banks, though, will be forced to close major facilities over the coming years in order to cut costs, and they may use those occasions to move operations out of the more hostile states.

Five Barclays employees are on trial for their role in rigging Libor rates. The evidence includes email messages that detailed traders’ speculation in interest rates and their influence on the Libor index to boost their trading gains. The defendants say that managers at the bank were actually at fault.

In a rare shadow-banking crackdown, police in China arrested 21 executives at Zhongjin Capital Management. The company has been closed ever since and client funds are frozen. The company is suspected of illegal fundraising, which could refer to any of a range of activities in selling securities in a deceptive, harmful, or otherwise prohibited way.

Separately, last week in New York, Montauk Credit Union, which had been in conservatorship since October, was merged into Bethpage Federal Credit Union.

Also last week, state regulators in Michigan liquidated Veterans Health Administration Credit Union, and the NCUA transferred member accounts to Public Service Credit Union. The failed credit union had 1,300 members.

Thursday, April 7, 2016

The most pointed immediate reaction to the Panama Papers has been in Iceland, where about 1/14 of all the people in the country came out to protest what they saw as a conflict of interest in the prime minister’s offshore fund and its investments in Iceland’s failed banks. The size of the protest must have been some kind of record. The prime minister resigned and the country is headed toward a new election.

Discussion in the United States has been muted by comparison — spirited, perhaps, but indirect. The most consequential event here was a new tax rule designed to prevent some forms of offshore income-shifting in a corporate merger. Separately, one presidential candidate proposed a form of currency controls to shore up public finance, but looking at the details, it appears that the kind of rich and powerful people mentioned in the Panama Papers would be unaffected. Only one major presidential candidate has directly mentioned the Panama Papers. It seems that U.S. politicians are trying to create the appearance of responding without going so far as to address the substance of the issues raised.

If there have been a wide range of reactions, the reactions to the reactions have been equally varied. Looking at the United States, some commenters have said that U.S. officials are conspicuously absent from the Panama Papers. The U.S. government might have been behind the leak, a few have implied, and must have intervened to protect interests here. Others have focused on the large number of offshore companies registered in the United States, a recurring theme in the Panama Papers. Shadow-money investors seemed to prefer the states of Nevada, Delaware, and Wyoming. Taking this angle might imply that U.S. policymakers might look for ways to clean up their own laws and practices before focusing their criticisms on people elsewhere.

Panama Papers mentions have added fuel to the fire in Brazil, Argentina, FIFA, and the United Kingdom, but without leading to any obvious shifts in power. These are places and institutions in a state of perpetual scandal, and a few new details about the shadow money channels at work may actually serve as a welcome distraction from the previous details.

Monday, April 4, 2016

“The big surprise . . . is seeing how little effort some of the big players made to cover their tracks.” That’s what one observer of the Panama Papers told me privately after a cursory early look at them. When thousands of crime groups, tax-dodgers, and other investors wanted to turn their money into shadow money, they followed a well-trodden path, almost as if their guide was a magazine article entitled “Seven Clever Ways to Hide Your Assets Offshore.” The shell companies they rely on have the same fill-in-the-blank bylaws and minutes as thousands of other companies, a strategy about as subtle as walking around wearing a “hidden offshore assets” T-shirt.

That’s one way of looking at it, but it pays to take a moment to consider the opposing point of view. Investors thought their assets were so well hidden that they could never be found. That too is a reasonable point of view. After all, the vast majority of offshore shell companies, 98 to 99 percent of them, remain effectively anonymous. The lawyers and accountants who set up the offshore shell companies were relying on years of history when they believed they had done what was needed to keep assets hidden. The many recent investigations and the Panama Papers have unmasked only a small fraction of these shell companies. The future leaks and investigations that will unmask more of the world’s shadow money in the coming months remain unproven theories in this view. Those that have been uncovered were simply the victims of a bad roll of the dice.

How can there be two views so diametrically opposed? Pardon me if I lean on mathematics to provide the answer. I believe the shadow-money investors are having difficulty wrapping their minds around the mathematical network models that connect the dots to unmask them. To the investors, four to six layers of indirection ought to be enough to reduce the question of ownership to noise or chaos. You would look at the shell company and you say, “The real owners could be anyone in the world.” Chaos theory, of course, is another model or field in mathematics. I use the term very loosely here, but I think it fits. The way I think of it, the shadow-money investors and administrators are applying an intuitive understanding of chaos theory to obscure the ownership of assets.

It is the network model that wins out. The four layers of obscurity in the chaos model are like four thick layers of clouds that you are trying to see through. How will you ever see anything? In the network model, by contrast, the four layers of indirection are just four hops in a directed flow chart. You may even have seen some of these flow charts in the news reports on the Panama Papers. It’s not that hard to figure out. It’s true enough that a network model might require a supercomputer to solve, but so what? I’ve had a supercomputer on my desk for a decade, and essentially any current desktop (not laptop) computer that costs over $1,200 has this level of computational capacity. Besides, if you start with enough clues, as in the example of a sudoku puzzle, you can solve a network problem on paper without the need for a computer. The offshore asset-hiding business is, in a way, simply out of date. The layers of clouds that served in 1998 are too easily dispersed by the fans of 2016.

Technology changes the meaning of information, and in the same way, it changes the ability to hide information. None of us are as hidden from the world as we imagine, but that is especially true of those who are trying to hide sums of money that most people will never see in a lifetime. Besides the question of technology, it is effectively a human instinct to find money. Taking money to another place in the world does not mean it is well-hidden — not anymore.

Sunday, April 3, 2016

Corruption is in the air. A year ago the top-to-bottom tale of corruption in international football was staggering in its scale, but that pales in comparison to not one, but two investigations in Brazil last month, one looking at the pillage of the state-owned oil company, another suspecting hundreds of businesses of bribing a tax appeals court. Then last week there was the revelation of systematic bribery carried out by people linked to a shadowy company called Unaoil and reaching into most of the countries that produce or consume oil. And today there is more. The unauthorized release of the “Panama papers” is claimed to be bigger than all the preceding combined. The 11 million documents are said to provide an inside look at 200,000 shell companies set up to hide money, avoid taxes, and deliver bribes that could not be easily traced.

Early reports about the Panama papers mention officials of Iceland, United Kingdom, and Russia and hint at offshore money under the control of hundreds of well-known global figures. It will take weeks to sift through the information that has already been made public — and who knows what leaks and revelations are coming next? There is reason to imagine that there is more to come, and not just because three is a trend. The low level of overlap among the five scandals I mentioned hints that what we are seeing so far is not yet the tip of the iceberg, but just a few random windows into the corporate world of shadow money. The corporate form in the electronic era is inherently vulnerable to just this kind of leak, so other hidden crime corporations can hardly gloat at their competitors’ misfortunes. Instead they are obliged to ask how soon their own shadow money might be brought into the light.

Friday, April 1, 2016

If a new U.S. government policy required breakup of the giant banks, could that process be completed so quietly that no one would notice? It would seem so after looking at the experience of GE Capital. With incremental changes over a period of two years, GE Capital has gone from dominating some segments of the banking sector to being a minor player. In total it has reduced its assets by half. From the GE press release:

Today, GE filed its request to the Financial Stability Oversight Council (FSOC) for rescission of GE Capital’s designation as a nonbank Systemically Important Financial Institution (SIFI).

The filing demonstrates that GE Capital has substantially reduced its risk profile and is significantly less interconnected to the financial system, and therefore does not pose any conceivable threat to U.S. financial stability.

I’m sure there will be some debate about whether GE Capital has reduced its footprint enough to be taken off the “systemically important” list, but it has at least done most of the transformation that would be required, reducing its assets by $284 billion, and it has done it quietly enough to stay below the radar most of the time. No one will argue that GE Capital has special management skills that Wall Street lacks, so it stands to reason that if GE Capital can make this transition, all the giant Wall Street banks could do the same thing. There is no reason to worry about financial earthquakes occurring during a three- or four-year process of breaking up the banks.

Charged: Prosecutors in Brazil have charged executives at Banco Safra, the country’s tenth largest bank, and its holding company with a plan to bribe a tax appeals court. The charges are based on recorded phone calls among executives. More than 100 companies are being investigated for similar offenses.

Cuts:Credit Suisse is cutting another 2,000 jobs after losing more money than it expected on its distressed asset portfolios.